For years, you have dreamed of starting a business but you do not have the money or do not want to borrow from a bank. There is a solution. You can use your retirement savings to invest in a business of your own. The IRS allows you to invest your funds in your business without taxation at the time of investment and without a lender controlling your business and assets.

Benefits of using retirement funds

(1) Avoid tax penalties: Dipping into your retirement plan normally causes you to lose some saved funds to taxes. However, under this plan, you can use these funds without first paying taxes. As a result, you can invest all the dollars saved.

(2) Be your own lender: If you finance through a bank or other lender, you will incur new debt and interest and will face rigid lender requirements. Many lenders require an owner to pledge collateral including personal assets such as a home. Lenders also may require that the business maintain certain financial goals and that it be operated in a certain manner. If your business fails to maintain those standards, the loan may be deemed to be in default. Admittedly, whether you invest a lender’s money or funds from your retirement account, your money is at risk. However, with this plan, you do not face the pressure of meeting a lender’s rigid standards.

How to roll retirement funds into a business

The first step is to create a C-Corporation. Then, the C-Corporation creates a new retirement plan – usually a profit-sharing plan. The funds from your existing retirement plan are rolled over into the C-corporation’s new plan. The new plan then purchases stock in the C-corporation. This financing technique does have costs, however. The new retirement plan requires annual administration, allocations, trust accounting and federal reporting. So, you will need assistance setting up the plans and following guidelines. Also, the new retirement plan must contain special provisions that permit this type of investment.

With Baby Boomers retiring young, and bright individuals being laid off in this economy, many people are pursuing their lifelong entrepreneurial dreams. A business of your own may be the most productive and exciting use of your retirement funds, and you can even use these funds without paying taxes.

For further information regarding these matters, please contact Ms. Beutler at 248.740.5690 or click here to send an email.